NEW YORK / RankWire.AI / – In its fiscal second quarter of 2026, Lululemon Athletica Inc. announced earnings per share that exceeded Wall Street estimates but revealed a 4% decrease in net revenue, which fell short of analysts’ expectations. Revenue for the quarter declined to $2.42 billion from the previous year, mainly due to weakening consumer demand across North American retail outlets, with analysts expecting $2.46 billion. Despite the revenue shortfall, diluted earnings per share reached $2.92, surpassing consensus forecasts, primarily due to a one-time tariff refund benefit.
The impressive EPS figure was supported by $134.5 million in tariff refunds from the International Emergency Economic Powers Act and an additional $4.1 million in interest, collectively adding $0.86 per share to net income. Removing the impact of this tariff relief, core operating margins contracted as selling, general, and administrative expenses increased to 41.7% of net revenue. Revenue in the Americas region decreased 8% year-over-year, accompanied by a 12% drop in comparable sales, reflecting ongoing challenges in core product lines and store traffic.
In response to continued sluggish demand, management has significantly cut its full-year fiscal 2026 guidance. The company now projects total net revenue between $10.35 billion and $10.50 billion, indicating a decline of 5% to 7% compared to the previous year. Diluted earnings per share for the full year are forecasted to be between $9.48 and $9.73, a sharp decrease from $13.26 in fiscal 2025. Following the announcement, shares declined nearly 18% during extended after-hours trading.
Lululemon’s Profit Rise Attributed to One-Time Tariff Refund
International markets partially offset the declines seen domestically, with total international net revenue increasing 4% on a reported basis and 2% in constant currency. Nonetheless, comparable sales in mainland China fell 8%, reflecting softer regional retail traffic. Quarterly operating income decreased 13% to $453.7 million, lowering operating margins from 20.7% to 18.8%, despite gross margin expansion driven by tariff credits.
During the earnings call, interim co-Chief Executive Officer and Chief Financial Officer Meghan Frank explained that brand momentum was challenged by softer consumer responses to new product launches and a decline in traffic across both physical stores and online channels. To adapt to changing demand patterns, the company has reduced its target for new store openings in 2026 to approximately 35 locations and is refining inventory management to focus on the most successful product categories.
Forecast for Q3 Revenue Indicates 10–11% Year-Over-Year Decline
At the end of the second quarter, Lululemon held $1.4 billion in cash and cash equivalents, with total inventory at $1.7 billion, down 1% in dollar value and 7% in units compared to the prior year. During the quarter, the company allocated $330 million toward repurchasing 2.7 million common shares under existing programs. It intends to continue its share buyback initiatives while projecting capital expenditures between $680 million and $700 million for the full fiscal year.
For the third quarter of fiscal 2026, Lululemon anticipates net revenue between $2.29 billion and $2.32 billion, representing a decline of 10% to 11% from the previous year. Diluted earnings per share are expected to be in the range of $0.93 to $0.98, compared to $2.59 in the same period of fiscal 2025. Investors and analysts will continue to observe operational metrics closely as the company adjusts its product strategies ahead of the critical holiday season.